When I had my first business in college, I completed all of my banking transactions in a physical bank. I waited in line for a teller who knew my name, wrote checks, used ATMs for cash and paid monthly banking fees because that was my only option.
Today, just over 10 years later, I never go into a physical branch, personally or for business. Banks are going digital and adapting to the times — they offer perks like fee-free overdraft, no monthly fees, 24-hour card delivery and 24/7 customer support. From AI-powered agents to in-app chat, banks are making major transitions to keep up with the digital consumer. More recently, traditional banks are having to compete with a crop of upstart digital banks that never have and may never need to open physical locations.
In both the digital and offline banking industry, my company provides digital customer support solutions and CX consulting services. From my perspective at the forefront of engaging with digital banking customers to solve operational problems, I believe traditional banks will either be directly competing with digital banks, or acquiring them, in the next five years. Here’s why.
In the past, once you picked a bank, you were essentially stuck with them, until you were driven away by horrible customer service. Switching banks was just too painful. But those days are over. The power has shifted into consumers’ hands, and they are willing to make a move if a better brand and experience presents itself.
Let’s take a look at four key areas in the competitive landscape.
In the next three years, it is estimated that visits to bank branches will drop by 36%.
One of the biggest differentiators of a traditional bank used to be the number of convenient locations. However, geographic location is no longer as big a concern for today’s smartphone-driven world. A person’s bank can be wherever they are. This is part of the reason why digital banks have gained so much popularity in the past few years. Although I almost never go to the physical branch of my bank, I use the app frequently, and they’ve been able to retain me as a customer — for now.
Millennials are one of the biggest generations in U.S. history. By 2030, this population is expected to reach 78 million.
An eMarketer study this year found that about 48% of millennials would consider moving their accounts to a digital-only institution. I predict this percentage will only grow in the next few years. I was shocked to learn that the number was this low, but even if the other half doesn’t convert (for now), that’s still half of the population willing to go fully digital. This is a massive shift that's hard to ignore.
Customer service has become the differentiator within digital banking. Remember, without a physical branch to visit, each interaction with a customer service rep replaces what used to be the in-branch experience with the teller.
Banks are investing heavily in technology to make the remote digital experiences as good, if not better, than in-branch interactions. While I’ve seen that many of the digital upstarts are well funded, it is still a David and Goliath fight. If traditional banks can throw money at the problem and create digital products to compete with the upstarts and level the playing field, the next battle will be over who can create the best personalized interactions with consumers.
Today, consumers are willing to walk away from a company that does a poor job of personalizing their experience, and this is especially true among millennials. Technology is not only delivering faster and more efficient transactions but also providing better customer response. Consumers cited “digital banking tools” as one of the most important factors influencing their choice of a bank. This number is growing year over year as banks reduce the number of branch locations.
Although artificial intelligence (AI) is one of the most talked about “ banking tools,” it is often thought of as a threat to the human workforce. However, this is not necessarily the case. AI is used to handle routine and straightforward functions efficiently -- humans are still necessary to train and maintain automation to ensure its efficacy.
One of the most significant benefits of AI is that it can streamline digital banking for better human interactions. AI resolves simple issues, freeing up time that customer service representatives can dedicate to handling the more complicated customer issues.
Is it really the best use of a person’s time to take calls and check someone’s balance when an automated system could do it so easily? Many banks have automated that on their interactive voice response system (IVRS), and digital banks cut that call down from minutes to seconds through AI automation. When you have the trifecta of AI automation, chatbots and machine learning, your digital workforce experiences peak efficiency. Alongside humans, machine learning becomes a teacher to a chatbot and helps them comprehend customer behavior. In turn, this creates a better experience for the customer because it decreases the likelihood that they will have to use another channel to get the answer they need.
With millennials expected to be inheriting $30 trillion from their parents and grandparents, they will continue to want convenient and seamless digital banking services that keep up with their mobile lifestyles.
I believe that location, demographics, digital experience and AI will be the core factors in the toppling of traditional banks and the rise of digital banks. As society continues to move into a mobile-centered lifestyle, I predict that the winners in banking will be digital-first companies. The traditional players will need more than just a digital strategy – they need to become digital companies, or they stand to lose significant market share.